Can InsurTech Make Miracles in Health?

As an American and the de facto administrator of my family’s health insurance, I am reminded routinely of some of the complexities of the methods we employ to maximize health and pay for care in this country. Forces are driving individuals, providers, insurers and employers to change their approaches or suffer the consequences. InsurTech companies that take aim at the U.S. healthcare industry by using software and data to improve efficiency and outcomes can benefit from this opportunity. Depending on whether you are an optimist or pessimist, the healthcare sector is the land of endless opportunity or unsolvable problems. Because the scale is huge, even small steps forward, aimed at opportunity pockets, can translate into significant wins. Let’s view the situation through four lenses: the health of the American people, marketplace trends, the role of regulation and the players. You can unpack any one of these and understand why Venture Scanner has identified more than $26 billion in funding that is being poured into 1,300 health-technology companies across 21 categories and 48 countries. The issues and implications arising from any of these categories are intertwined, so even startups focusing on health insurers cannot disconnect from what is happening in the rest of the ecosystem. This post focuses on health insurance in the U.S., not the broader healthcare space or other geographies, because the U.S. is a) a massive market and b) a different structure from markets in Europe and Asia). Americans, overall, do not live a healthy lifestyle The U.S. came in last place in a 2013 ranking of affluent countries’ health in a Mayo Clinic Proceedings study that included four factors in its definition of “healthy lifestyle”: diet, exercise, weight and smoking. Americans are getting fatter. More than one-third of the adult population is obese. Every single state has an obesity rate of more than 20%, adding an estimated $200 billion to the national healthcare tab. A piece of good news from the Centers for Disease Control is that the percent of adult smokers has dropped steadily from 42% in 1965 to 17% in 2014. The trend among students has been less stable, but generally downward, peaking at 36% in 1997 and dropping to 16% in 2013. This is a huge and shifting marketplace Consider just a few dimensions:

• Healthcare spending represents 18% of the U.S. gross domestic product, $3.2 trillion, or about $10,000 per person. As the population ages, government spending in the sector is expected to increase. Also consider that 30% of Medicare dollars go toward the 5% of beneficiaries who become very ill and then die each year.
• Employers are taking action to shift costs to employees, and slow spending. Employers provide coverage to 150 million Americans. And, according to the 2015 Kaiser Family Foundation total average annual premium per employee has increased from $5,791 to $17,545 since 1999. Employees are being asked to pay more, or to avoid doing so by trading down to high-deductible plans. This creates near-term savings back to healthy families who don’t run into any medical surprises. What is rarely highlighted, however, is how many families are effectively assuming the financial risk of facing a large deductible in the event of, say, an unanticipated hospitalization. Because 62% of Americans have less than $1,000 in savings and 21% have no savings, the potential is real for individual families to face serious financial consequences as a result of this choice.
• Only one in seven Americans understand the insurance plans selected yet are held increasingly responsible to manage decisions that could have implications not only for cost, but also for quality of life.
• Insurance carriers have benefited from ACA (Affordable Care Act aka Obamacare, formally named the Patient Protection and Affordable Care Act) because of how the statute has expanded the market and provided premium subsidies for lower-income households. At the same time, insurance companies remain the least trusted of the healthcare subsectors.

Regulations focus on changing behavior, protecting patient data and stimulating innovation ACA, signed into law in 2010 and upheld by the Supreme Court in 2012, is watershed legislation that set the sector up for reinvention. ACA takes both a carrot and stick approach to increase coverage and care effectiveness while lowering costs, e.g.,

• If as a user you don’t purchase coverage, you face penalties.
• If as an employer of 50-plus people you don’t offer coverage, you face penalties.
• Health care providers are being given incentives to make "meaningful use" of electronic health records to create efficiencies and improve care decisions, and face penalties if they fail to use such tools
• Primary care providers and general surgeons are being given incentives to move to low-coverage geographies.

These are just a few examples of how ACA is attempting to get people to change how they select, use and administer healthcare payments and services. Two other regulations affect health insurers:

• The Health Information Privacy and Protection Act, better known as HIPAA, the privacy, portability and security rule designed to protect patient health information, while improving data portability. HIPAA affects how data is stored, protected, used and transferred.
• The HITECH Act (Health Information Technology for Economic and Clinical Health) was enacted to support the development of a nationwide health IT infrastructure, as well as define and maintain standards for health information technology products and how they interact with each other.

Any health care player -- incumbent, startup or investor -- must understand how the regulations work For those who question whether ACA might be repealed, consider that, while this year's election suggests anything can happen in politics, there have been more than 50 failed attempts by Republicans in Congress to undo the legislation. So, better to understand how the incentives and disincentives relate to any potential new business model, and appreciate how big a departure ACA’s core principles are from the traditional way in which the U.S. healthcare system has operated. The latter is vital to understand the dynamics of the new playing field and how individuals, providers, insurers and employers are responding. The winning business models will be those that exhibit four characteristics:

• Link to the regulatory levers – carrots and sticks for individuals and providers – and move them. This is where the commercial value lies.
• Prove they can deliver better outcomes at lower cost.
• Demonstrate potential to scale, by itself, via B2B partnerships, or via exit to a scale incumbent.
• Have a viable basis for underwriting and risk management.

Success will be a function of software + data + tactical knowledge of the levers – both the regulations and how to motivate behavioral change where people are being asked to make radical changes.